Transparency about critical economic issues — such as public debt and
employment — will be the key to driving growth and enhancing trust in
government in the Middle East and North Africa (MENA) region. The need for
greater transparency comes as the MENA region faces unprecedented dual shocks
from the COVID-19 (Coronavirus) pandemic and the collapse in oil prices. The
shocks have exacerbated already slow economic growth in the region, due, in
part, to lack of data transparency. As of April 1, changes in forecasts implied
that the costs for MENA were about 3.7% of the region’s 2019 GDP (approximately
US$116 billion) compared to 2.1% as recently as March 19.

Chapter I: The Dual Shocks of the Novel Coronavirus and the Oil Price
Collapse

This chapter shows that estimates of the costs of the current crisis
are fluid because it is difficult to predict how the global economy, national
policies, and societies will react as the pandemic spreads. The COVID-19
pandemic is affecting MENA economies across four channels:

the deterioration of public health

falling global demand for the region’s goods and services

declines in MENA’s domestic supply and demand because of social
distancing measures

and, importantly, falling oil prices

The collapse of oil prices hurts both oil exporters directly, and oil
importers indirectly, through declines in regional remittances, investment and
capital flows.

This is in addition to the slow growth challenge across MENA that
predated today’s dual shocks. The authors estimate that if the region’s growth
of output per capita had been the same as that of typical peer economies over
the last two decades, the region’s real output per capita would be at least 20%
higher than what it is today, to 2.1% as recently as March 19, 2020.

This chapter assesses the sustainability of current account and fiscal
deficits across MENA countries. It relies on the best available data that are
comparable across countries. In 2019, 11 MENA countries seemed to be on
unsustainable fiscal paths: Their reported primary fiscal balances were
insufficient to stabilize their gross-debt-to-GDP ratios. Fiscal sustainability
assessments are hampered by lack of transparency concerning public debt stocks.

This chapter studies the role of transparency in the measurement of
aggregate labor market outcomes in the MENA region. It analyzes unemployment
rates, female labor force participation rates, and, to a lesser extent,
informality. MENA countries rely on imprecise definitions of employment, which
blur the lines between unemployment and informality.

The discrepancies distort the role of women and rural areas in national
labor markets. Using precise definitions of employment and unemployment,
statistical evidence suggests that female labor force participation might be a
generational issue because it is high among educated young women.

Chapter IV: Summary of Findings

World Bank economists expect output of MENA to decline in 2020. This is
in sharp contrast to the forecast in October 2019 when the regional economies
were expected to grow at 2.6% this year.

The growth forecasts don’t change the picture of the region’s struggle
with the triplet challenges of lackluster long-term growth of GDP per capita,
macroeconomic fragility, and poor labor market outcomes. The region’s lack of
data and transparency contributed to these long-term outcomes.

The report recommends that countries respond with policies in two
parallel steps:

Address the health emergency and the associated economic contraction

Start in the enactment of transformative and largely budget-neutral
reforms such as debt transparency and restructuring of state-owned enterprises.

ALGERIA: Following a year of political uncertainty and social unrest
leading to the deceleration of economic activity, Abdelmadjid Tebboune won the
December 2019 Presidential election. In 2020, the COVID19 outbreak will slow
down consumption and investment, while falling oil prices will cut into fiscal
and exports revenues. The new Government has the difficult task to maintain
macroeconomic stability, respond to the public health crisis and pursue
structural reforms.

BAHRAIN: Overall economic growth is expected to decelerate this year as
economic disruption associated with Covid-19 will weaken oil demand and weigh
heavily on non-oil activity. The fiscal and external deficits are expected to
reverse the narrowing path observed in 2019. Then the budget deficit is
projected to only gradually narrow given lower oil revenues, and the large
off-budget spending. A key source of stress is large interest payments on the
external debt, intensifying pressure on reserves. Downside risks arise from the
twin crises for the Gulf of continued plunge in oil prices and Covid-19
outbreak.

DJIBOUTI: After two decades of strong economic growth, the economy is
expected to slow dramatically as the government takes restriction measures to
avoid rapid and wide spread of the COVID-19 in local communities and strain healthcare
systems. Per capita GDP is expected to contract for the first time since the
global financial of 2009. With the rigid monetary regime (currency board) and
virtually no fiscal buffers to protect vulnerable households, the social impact
of the crisis could be particularly devastating

EGYPT’s macroeconomic stabilization program was largely successful in
supporting growth, generating a solid primary budget surplus, reducing the
debt-to-GDP ratio, and replenishing reserves. Vulnerabilities persist however,
including the exports and FDI underperformance, which may be aggravated by the
disruptive repurcussions related to the COVID-19 pandemic. This underscores the
urgency of resolving structural challenges to safeguard a sustained recovery,
through addressing the business environment constraints, while enhancing
revenue-mobilization to create the fiscal space needed to advance the human
capital agenda.

IRAN: The economy contracts for a second consecutive year in 2019/20
due to the tightening of US sanctions and despite growth in some non-oil
sectors. Inflation and unemployment remain high compared to regional averages.
The fiscal deficit has widened due to underrealized revenues as the current
account surplus diminished. Iran has been severely impacted by the COVI19
pandemic which, combined with the recent decline in global oil prices and
stringent economic sanctions present significant risks to the country’s
economic outlook.

IRAQ: While the oil sector boosted growth in 2019, the Government of
Iraq’s failure in service delivery, fighting corruption, and private-sector job
creation has prompted ongoing social unrest since November. In response, a
considerable expansion in public sector employment, pensions, and transfers
overshadowed critical spending for human capital and reconstruction. The
outlook entrails considerable risks linked with lower oil prices, the spread of
COVID19, budget financing constraints, political deadlock, and the need for
fiscal consolidation.

JORDAN: Amid already weak economic performance, recent global
developments in light of the COVID-19 pandemic are likely to have a
substantially negative impact on Jordan’s growth prospects in the new term.
This impact would be largely transmitting through slowdown in major export and
regional markets, reduced international travel and foreign inflows, and
disruption in the services sector, as social distancing measures are rigorously
enforced. On the flip side, lower oil prices are helping reduce oil’s import
bill, and to some extent limit the current account deterioration although its
impact on remittances and international concessional financing, especially from
the GCC could partly offset the reduced import bill.

KUWAIT: Subdued oil prices and lower oil production led to slower
overall economic growth in 2019 but robust public spending and credit growth
are expected to underpin non-oil growth through the medium term. The steep
downturn in oil prices since March and slower global growth spurred by the
coronavirus will be absorbed by fiscal and financial buffers, at the expense of
sustainability and diversification. This underscores the need for implementing
fiscal and structural reforms to diversify away from hydrocarbons, support
private sector activity and lay the foundations for a more sustainable growth
model.

LEBANON: The country is facing compounded crises. On March 7, the
Government defaulted on a $1.2 billion Eurobond redemption as the economy
continues to suffer from financial crisis stresses. The decision’s main effect
is on banking solvency, for which the authorities are ill prepared. On March
18, the Government declared a state of General Mobilization giving authorities
a legal mandate to impose special measures to counter COVID-19, including the
closure of the borders (airport, sea and land), and public and private
institutions.

LIBYA: The country’s conflict has become a proxy war, which complicates
peace and recovery prospects. Oil production stopped as the sector is being
used for partisan political gains, which exacerbating the economic situation
and the hardship of the population. Consequently, the macroeconomic framework
is unstable as both the budget and current account will run deficits in 2020.
Prospects are uncertain, exacerbated bu the effects of COVID-19 globally and
domestically. A political resolution is needed to implement the required
reforms for a private sector driven growth and jobs creation

MOROCCO: The global effects of the covid-19 pandemic compound with the
domestic ones and those of the drought. Consequently, Morocco’s economy is
expected to suffer from a recession this year, the first one in more than two
decades. The twin deficits will deteriorate, increasing significantly financing
needs. Demands for external financing have increased, which also underlying the
imperative of consolidating foreign reserves. Both Central government’s and
external debt will increase but will remain sustainable. The outlook remains
subject to significant downside risks, including from more severe and longer
duration of the pandemic.

OMAN’s economy is expected to show a marked slowdown in 2020 due to the
oil price slide and concerns related to the coronavirus outbreak. An increase
in gas output and infrastructure spending plans in the non-oil sector will help
growth to recover over 2021-2022. Fiscal and external deficits will remain
under immense strain due to low oil and gas prices. Rigid recurrent spending
will keep public debt high at an estimated 60 percent of GDP in 2020, and to
increase further in the years to come. Key risks to the outlook arise if the
oil price crash is long-lived, which would include higher domestic and external
borrowing and result in further sovereign rating downgrades and higher
financing costs.

QATAR: Growth had been rebalancing as FIFA-related infrastructure
investment tapered while other large projects in the gas and non-hydrocarbon
sectors are underway. Fiscal and external balances had returned to surplus but
remain highly vulnerable to volatility in hydrocarbon prices. Expanding LNG
capacity is expected to underpin growth in the medium-term. Drags on growth
include energy price volatility, COVID-19 disruptions, and the continued
diplomatic rift with some Gulf neighbors. The diplomatic rift vindicated the
infrastructure-focused diversification strategy, but COVID-19 has worsened
under-utilization of capacity.

SAUDI ARABIA: The contracting oil sector led to sluggish growth in
2019, despite strong performance of non-oil sectors. The outlook for 2020
remains very weak in the wake of Covid-19 and oil supply shocks. Medium term
fiscal balances are estimated to continue in deficit — risking the ability in
realizing Vision 2030 fiscal targets. Vision 2030 related reforms are critical
for diversification and progress was made on business environment reforms. The ambitious
reforms agenda will pose implementation challenges for the public sector.

TUNISIA: The new government faces an economic situation that is highly
vulnerable to a deterioration of the global economy due to the coronavirus
pandemic and volatile oil prices. Tunisia has high twin deficits and debt, and
limited buffers, whereas growth is anemic, employment stagnant, and inflation
relatively high. A worsening pandemic would negatively impact tourism, exports
and domestic demand and consequently growth, employment, and household
vulnerability. A sharp reversal of recent oil price dynamics would exacerbate
current account and fiscal pressures.

UNITED ARAB EMIRATES: Overall economic growth stabilized in 2019,
despite a recovery in the hydrocarbon (HC) sector, due to headwinds in non-HC
sector, notably from real-estate oversupply. Fiscal stimulus programs targeting
business costs were launched to facilitate an acceleration. In 2020, plunging
oil prices and efforts to contain the coronavirus will weigh heavily on the
non-HC sector which was already facing challenging debt burdens and intensified
traded services competition. The medium-term outlook depends on a rebound in
trade/travel and on structural reforms that can reinvigorate productivity and
innovation.

WEST BANK AND GAZA: Following a fiscal crisis in 2019, the Palestinian
economy was projected to slowly recover in 2020. However, the covid-19 outbreak
seems to be largely weighing on economic activity. Living conditions are
difficult with a quarter of the labor force unemployed and 24 percent of
Palestinians living below the US$5.5 2011 PPP a day – even prior to the recent
outbreak. A larger than expected decline in aid and a further spread of the
covid-19 virus pose significant downside risks.